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Stock Strategist

Lithium Is Crown Jewel for SQM

The company will benefit from capacity expansions at its attractive low-cost assets.

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Through its access to high-quality mineral deposits,  Sociedad Quimica y Minera de Chile (SQM) is a large, low-cost producer of lithium, iodine, and nitrates used in specialty fertilizers. SQM’s crown jewels are its geologically advantaged lithium and caliche ore assets. Its low-cost lithium deposits in Salar de Atacama boast the highest concentration of lithium globally and benefit from high evaporation rates in the Chilean desert. As electric vehicle penetration increases, we expect mid-double-digit annual growth for global lithium demand, one of the best growth profiles among commodities. SQM is a major supplier in the lithium carbonate market and should benefit from the higher capacity that it has built in recent years. The company is also investing in lithium hydroxide production capacity in Australia through a joint venture with Kidman Resources that will mine and produce spodumene, then convert the spodumene into lithium hydroxide. The project should boost profits in the next decade as its unit costs should sit on the bottom half of the lithium hydroxide cost curve. SQM holds a joint venture stake in a low-cost brine resource in Argentina under development but agreed to sell its stake to Ganfeng Lithium by the end of 2018.

SQM holds just under half of the market share in potassium nitrate, a specialty fertilizer used in high-value crops, including fruits and vegetables. Specialty potash demand should benefit from the shift in emerging-market diets to higher-value foods. While specialty fertilizer prices tend to move in line with commodity potash prices, they have been less affected by movements in commodity potash prices. SQM is also a small player in commodity potash.

Seth Goldstein does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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